Abstract
This study uses a long-run Structural Vector Autoregressive (SVAR) approach to identify the sources of real exchange rate fluctuations in the euro. The empirical results indicate that real shocks play a dominant role in explaining the real exchange rate fluctuations in the euro. This implies that the best approach for policymakers toward improving the competitiveness of the EU is to focus on improvements in the real economy, such as improvements in efficiency, technologies and productivity.
Acknowledgements
We are highly grateful to an anonymous referee for his/her helpful suggestions. The first author's research is partially supported by the Grant-in-Aid of the Japan Society for the Promotion of Science (21st Century COE program). The second author's research is partially supported by the University of Marketing and Distribution Sciences.